Government threatens tax avoidance
Philip Fisher raises the alarm about two government papers which could change the face of tax avoidance forever.
The timing was unfortunate, but just as coronavirus was beginning to grab all of the news headlines, the government published two documents that could change the field of tax advice forever.
Practitioners will have differing opinions about the policy papers. Some will welcome greater clarity, while others will be angry about an intended attack on several methodologies – and those who market and implement them. The paper calling for evidence on tax advisers could actually be good news for qualified professionals.
It seems that the government’s main targets are those who give tax advice without being properly capable of doing so. While this could include a small minority with ageing professional qualifications, it is much more likely to apply to the unregulated.
One possible future envisages a time when only those with appropriate qualifications can operate as tax advisers. Most practitioners would probably welcome that. A less attractive prospect would be the idea that HMRC could ban advisers whose work does not accord with their own value systems. That leads into the other document on tax avoidance, which is likely to be far more controversial with members of our profession and others that advise on tax matters.
The government sets out its stall in uncompromising terms:
“Tax avoidance is bending the tax rules to gain a financial advantage never intended by Parliament. It involves contrived and artificial transactions that serve little or no purpose, other than to reduce the amount of tax someone pays, and it deprives important public services of the funding they need.”
Every time I write an article about tax avoidance, readers are at pains to point out that tax avoidance is perfectly legal. I don’t know how to break this to you, but that has not been the opinion of those in the Treasury since George Osborne was Chancellor of the Exchequer, and probably long before. The official view is that “tax avoidance” equates to an abuse which is much closer to tax evasion than legitimate planning and rearrangement of an individual’s financial affairs.
The policy paper is packed with examples of avoidance, particularly targetting the various loan schemes. To play the devil’s advocate, it is hard to believe that Parliament intended individuals to stop receiving a salary, take a loan instead and pay little or no tax.
The fact that the powers that be were unable to draw up legislation to prevent such behaviour should be regarded as an indictment on the various governments, but does not change what has become an increasingly common view. Trying to recover taxes saved in this way retrospectively is another matter and that will be determined by the law. Realistically, that is literally history.
Closing the loopholes
There is an obvious issue that the tax avoidance document raises and which we all need to consider. The desire to minimise tax liabilities by use of loopholes in the law characterises the more extreme tax avoidance schemes that succeeding governments have sought to outlaw. There seems surreal intent on the part of government to clamp down once and for all.
A clear distinction exists between pure vanilla arrangements such as transferring assets around families in an attempt to save inheritance tax, and creating a series of artificial arrangements that take money out of the tax system against the original wishes or intentions of Parliament. It seems inevitable that over a period of time, the government and HMRC will begin to introduce new legislation that gradually eats away at many of the schemes that are currently in operation. Sadly, it is inevitable that such action will sweep up some perfectly respectable arrangements while stopping many more upon which the vast majority of the population would very reasonably frown.
The government is clearly of the view that the avoidance industry has gone too far and we only have ourselves to blame. In particular, they take umbrage at mass marketing of schemes by promoters and enablers. Up to a point, they are probably right, but that will become irrelevant when they introduce laws with which we are all obliged to comply.
Sadly, rather than simplifying the tax system, which would be an obvious way to achieve this goal, legislation is likely to become even more complex and certainly harder to interpret, if a number of the ideas about following the will of Parliament are enacted, guaranteeing that some of the best laid plans of mice and men end up spending years going through the courts.